2016 (9) TMI 1563 - AT - Income Tax

Addition towards long term capital gains by withdrawing the exemption u/s 54 - Assessee had not fulfilled the conditions prescribed u/s 54 barring the deposit of the sale proceeds in the capital gain scheme account - HELD THAT - Facts reveal that the assessee had deposited the entire sale proceeds in his savings bank account maintained with nationalized bank out of which he has constructed his house. The only small lacuna assessee had made is that the assessee though had placed the entire sale proceeds in the nationalized bank he has not transferred the same in the Capital gain scheme account . For this small technical lapse of the assessee, the benefit of section 54 should not be denied. Section 54 of the Act is a beneficial provision and a beneficial interpretation has to be made as far as possible for giving benefit to the assessee. The assessee had proceeded to comply with the provisions of section 54 of the Act but has only made a small technical breach which we are of the considered view should not disentitle the assessee for the benefit of section 54 of the Act. Therefore, we hereby direct the AO to grant the benefit of section 54 of the Act to the assessee and accordingly delete the addition made by him which was further sustained by the learned Commissioner of Income Tax (Appeals). - Decided in favour of assessee.

Summary

Issues:
1. Delay in filing the appeal by the assessee.
2. Eligibility for exemption under section 54 of the Income Tax Act.

Issue 1: Delay in filing the appeal by the assessee:
The appeal filed by the assessee was initially barred by a limitation of 33 days. The assessee explained that the delay was due to inadvertently failing to pursue the appeal, believing it was already handled by the representative. The Authorized Representative argued for condoning the delay, which was opposed by the Departmental Representative. After hearing both sides, the Tribunal decided to condone the delay and proceed with hearing the appeal.

Issue 2: Eligibility for exemption under section 54 of the Income Tax Act:
The core issue revolved around the addition made by the Assessing Officer towards long-term capital gains by withdrawing the exemption under section 54 of the Act. The assessee had sold a property and claimed exemption under section 54 by constructing a residential house within three years from the sale. However, the Assessing Officer disallowed the exemption as the sale proceeds were not deposited in a capital gain scheme account as required by section 54(2) but in the regular savings account. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing the importance of fulfilling all conditions under section 54.

During the appeal, the Authorized Representative argued that the assessee had fulfilled all conditions except for the deposit in the capital gain scheme account, citing relevant tribunal and court decisions supporting a lenient interpretation. The Tribunal noted that the assessee had made a technical breach by not depositing in the specified account but had complied with other requirements. Relying on previous judgments, including the Hon'ble Apex Court decision, the Tribunal held that the small technical lapse should not disentitle the assessee from the benefit of section 54. Consequently, the Tribunal directed the Assessing Officer to grant the benefit of section 54 and delete the addition made.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the beneficial nature of section 54 and the need for a lenient interpretation in favor of the assessee. The judgment was pronounced on September 15, 2016.